UFJ sets historic low amid bank fears

UFJ stock fell 32 percent this week as Japan looks set to get tough on the banks' mountain of bad debt

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TOKYO, Japan -- Bank stock UFJ Holdings hit a historic low on Friday, as investors brace for tougher steps to deal with Japan's banks.

The stock hit 194,000 yen during the day, closing down 4.8 percent at 218,000 yen.

Japan's government is shaping up to take a hard line on dealing with Japan's bad loans, which some estimate at $400 billion.

New Financial Services Minister Heizo Takenaka is thought to favor injecting public funds into the banks. He was given the post on Monday, replacing Yakuo Hanagisawa, who was seen as being too soft on the banks.

Though they rose on the day of Takenaka's appointment, bank stocks have sold off sharply since.

Takenaka has formed a task force to deal with the banks. Its members include KPMG chief Takeshi Kimura, who has advocated outright nationalization of banks that don't meet capital requirements.

The government may push banks to increase their loan-loss reserves.

"I don't think I would like to own bank shares in this environment," ING Barings chief Japan economist Richard Jerram wrote in a report.

If a major policy change is in the works, it will likely come before the end of October or not at all, he said.

Lender to troubled companies

Finance Minister Masajuro Shiokawa on Friday encouraged Prime Minister Junichiro Koizumi to set up a safety net for small companies at risk of going bust. That could include guarantees on loans and steps to boost jobs.

But Koizumi said that he would not authorize new public works to help Japan out of its slump. (Full story)

UFJ, the smallest of Japan's Big Four banks, is one of the creditors of debt-heavy companies such as retailer Daiei Inc. and home builder Misawa Homes Co.

UFJ fell a record 14.9 percent on Thursday and continued that decline despite a broader rally on Friday. It dropped 31.8 percent for the week.

The broad Topix index closed up 0.91 percent at 891.60 on Friday, while the Nikkei staged a rally back above 9,000, closing up 1.0 percent at 9,027.55.

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